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Debate: UK nationalization of Northern Rock

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Was the UK right to nationalize Northern Rock in early 2008?

Background and context

Northern Rock is a British mortgage lender which was on the verge of bankrupcy until the government decided to intervene. There is much controversy surrounding the state's decision. Views that it rewarded the reckless risk-taking of the management through taxpayers' money are often countered by those that stating that greater intervention and regulation is more of a punishment as it deprives them of the freedom they are used to.

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'People who smoke should have to pay for their own healthcare.' Although extreme, this viewpoint is often extended to the situation of Northern Rock as many argue that with irresponsible risk-taking and greed, they should have cleared up their own mess. What is implied by this principle, is that the lender should have been left to sink on its own. If the state allowed this to happen, then this would have a devastating knock-on effect on our domestic economy. It may not be an international investment bank, but Northern Rock holds millions of deposits belonging to consumers across the country. Following its collapse (which would be inevitable with no bail-out), these deposits would be lost, including thousands of jobs. Even consumers holding no direct connection to the mortgage bank would feel the consequences with falling confidence in their own lenders. Therefore, the government had no other choice but to save the bank from what would have been an undesirable series of economic consequences which would have undoubtedly intesified the early stages of the recession within the country.

Did the government's actions reward the irresponsible behaviour of the bank? It would be highly unjustified to argue that where freedom is replaced with greater regulation and intervention, they have been rewarded. To invest in the same kinds of areas as they have done, is going to become extremely difficult. By no means has a bail-out rewarded their behaviour as they now face greater surveillance from authorities - something no risk-hungry banker is going to be pleased about.

With reduced freedom following state intervention on part of the bank, and undesirable consequences on our economy, it appears that the governement made the correct choice to bail out Northern Rock.

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